BEAT THE SYSTEM: Clear credit card debts and pay no interest

You should always tread carefully with credit cards, remembering how easy it is for debts to build up - and hard it is to pay off!

If you already have debts, you should pay them down as quickly as possible - but in the meantime, you should play the system to make your rate as cheap as possible. In the latest in our 'Beat the system' series, Clare Francis explains what you need to do.

When it comes to credit cards, it definitely is not the case that one size fits all. We’re fortunate here in the UK to have one of the most competitive credit card markets in the world.

Yet millions of people are failing to benefit from this simply because they have the wrong plastic in their purse or wallet.

Card trick: The best one for you will depend on what you use it for

Competition and choice is great, but
it can also be baffling. When it comes to credit cards, the best card
for you will depend on how you use it. Do you always pay your card off
in full or are you the type of person who has an outstanding balance on
your card? Perhaps you’re a regular traveller, or maybe you’ve never had
a credit card before.

This
article will focus on the best options for those who have racked up a
debt on a credit card (or store card). The most suitable types of card
for this circumstance are balance transfer cards or balance transfer
& purchase cards.

More...

If
you have an outstanding balance on a credit card, you’ll probably be
paying an annual rate of interest of around 18 per cent - possibly even
higher.

However, there
are a number of card cards that have 0 per cent introductory periods for
new customers who transfer a debt over from their existing credit card –
known as a balance transfer.

Therefore,
if you owe money on a credit or store card, it’s well worth taking
advantage of one of the interest-free deals available. After all, what’s
the point in paying more interest than you need to?

How do 0 per cent balance transfer cards work?

Most
credit cards allow you to make a balance transfer, although they don’t
all have 0 per cent offers. However, in order to benefit from the 0 per
cent period you will usually have to do the transfer within 60 days of
your new credit card account being opened.

Showing great interest: The longest 0% period available is 22 months

It’s
quite straightforward to do, you will just need to provide the details
of the card you want to move the debt from and state the amount to be
transferred. Your new credit card provider will then do the rest.

You
will be charged a fee to make a balance transfer. This is usually
between 2.5 per cent and 3.5 per cent of the sum to be transferred. It
doesn’t have to be paid up front: instead it will be added to your debt.

While,
balance transfer cards offer the chance to avoid paying interest on
your credit card debt, this only applies for a set period of time. The
longest 0 per cent period currently available is 22 months (see below).
You should therefore aim to clear your debt during that time because
once it ends you will start accruing interest at the standard rate
applicable to that card.

It
is also imperative to ensure that you pay some money off the card every
month – if you miss one of your monthly payments you will forfeit the 0
per cent offer and interest will be charged on your balance.

And
don’t be tempted to spend on the card. While your transferred balance
won’t attract interest, any purchases you make probably will. Some
balance transfer credit cards offer 0 per cent periods on purchases as
well, although for a shorter period of time, typically three months.

There is another option though...

If
you want a credit card to spend on as well, it is possible to benefit
from 0 per cent periods on both balance transfers and purchases.
However, be aware that the length of the interest-free period on balance
transfer & purchase cards will be shorter. The market-leading deal
(details below) has 14-month 0 per cent periods for both balance
transfers and purchases.

The alternative is to have two separate cards: one for spending and the other to transfer your existing credit card debt onto.

More...

What are the leading deals?

Best balance transfer cards

The longest 0 per cent period is available from Barclaycard. ItsPlatinum Card with Extended Balance Transfer
is interest-free for 22 months if you make a balance transfer within
the first 60 days. There is a 2.9 per cent transfer fee and although you
can apply for this card from This Is Money’s website, if you are
looking to make a balance transfer of more than £3,000 you will receive a
£40 refund if you apply direct through Barclaycard.

Purchases
are interest-free for the first three months, after which you will be
charged interest at the representative annual percentage rate (APR) of
17.5 per cent (variable). This is also the rate you’ll pay on your
transferred balance, if you don’t clear the debt during the 22-month 0
per cent period.

The
representative APR must be offered to at least 51 per cent of successful
applicants but this means that 49 per cent could be charged interest at
a higher rate.

Big spender: If you are looking for a credit card to spend on as well, Barclaycard tops the table

The Halifax Balance Transfer Card
also offers a 22-month 0 per cent period on transfers up to £3,000,
although the fee is higher at 3.5 per cent. The representative APR on
this card is 17.9 per cent (variable). This could be a good choice if
you already have a Barclaycard as you can’t make a balance transfer from
a card issued by the same provider.

If
you will be able to clear your credit card debt in less than 22 months,
there are deals that charge a lower transfer fee. Barclaycard’s
standard Platinum with Balance Transfer Card
is almost as good. The 0 per cent period is 21 months, and the
representative APR is 17.9 per cent (variable), but the transfer fee is
2.6 per cent. On a transfer of £2,500 this will save you £7.50 – you
will pay a fee of £65 as opposed to £72.50 on the Extended Balance
Transfer Card.

And if you can pay your credit card off within 16 months, the Barclaycard Platinum Balance Transfer Card
with Low Fee charges just 1.6 per cent - £40 on a £2,500 transfer. The
representative APR on this card is 18.9 per cent (variable).

For those looking for an alternative to Barclaycard, Virgin also has card with a low transfer fee. The Virgin All Round Card
offers a 16-month 0 per cent period on balance transfers, with a
representative APR of 15.8 per cent (variable), and the transfer fee is
1.99 per cent.

Best balance transfer & purchase cards

If you are looking for a credit card to spend on as well, once again, it’s Barclaycard that tops the table. Its Platinum with Purchase Card
has 14-month 0 per cent periods for both purchases and balance
transfers. The representative APR is 18.9 per cent (variable) and you’ll
be charged a balance transfer fee of 2.9 per cent.

Alternatively, Halifax, Natwest and Virgin
all have balance transfer and purchase cards with 13-month 0 per cent
periods. Halifax charges 3 per cent to make a balance transfer, while
Natwest charges 2.9 per cent and Virgin levies a fee of 2.89 per cent.
Halifax and Natwest both charge representative APRs of 17.9 per cent
(variable). Virgin’s is slightly higher at 18.9 per cent.

Top tips to beat the system

Always pay more than the minimum.

Try and clear your credit card debt before the 0 per cent period ends.

Set
up a direct debit to ensure that you don’t miss a credit card payment.
If you are late with a payment not only will the 0 per cent offer be
cancelled, but you will also incur a £12 penalty charge and it could
have a negative impact on your credit score, reducing the chance of you
being accepted for credit in the future.

Don’t
apply for a credit card you have no chance of getting. You will need an
excellent credit history to qualify for the leading deals so if yours
is less than perfect don’t waste the application. Whenever you apply for
any form of credit, the lender will check your credit report and a
‘footprint’ is left on your file each time a check is done.

Moneysupermarket is This is Money's credit card comparison partner. It has provided links to the deals mentioned above, where you can check the small print, compare cards and apply.

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